Mark Pincus, Zynga CEO, Goes On Charlie Rose

Yesterday Mark Pincus, the CEO of popular social gaming startup Zynga, went on Charlie Rose to discuss the future of the social gaming space. There’s nothing really new stated except for a brief mention of a new startup created by Mark Pincus’ wife. Over the past couple years, Zynga has surged to the top of the social gaming space, now attracting over 230 million monthly active users across all their applications. While growth has appeared to slow for the holidays, Zynga is leaps and bounds beyond any competitors at this point.
With a $180 million influx of cash from DST, Zynga continues its ascent. Mark Pincus emphasized the company’s ongoing focus on virtual goods for revenue which are projected to more than quadruple in the next year or two. The interview will be reaired tonight on Bloomberg Television® at 8PM and 10PM ET. Alternatively you can watch the clip below. We’ve also embedded the transcript below as well.

MARK PINCUS, FOUNDER AND CEO, ZYNGA: I think there is a social media revolution going on right now. And I think that we are changing our media consumption habits at a rate that we haven’t done even with the advent of the Internet. I think it’s going on right now. I think the people regularly are consuming media while they’re at work and while they’re doing other activities in a tab in their browser or on their smart phone. And I think media will change. In order to thrive I think media will figure out how to entertain me in several minute bites and in ways that are more social.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

CHARLIE ROSE: Mark Pincus is here. He is the founder and CEO of the social gaming company Zynga. It is behind some of those popular apps for games.

Among them is Farmville, which allows users to manage a virtual farm.

It has 66 million monthly active users with farms, that is more than the total number of farms in the United States. Zynga’s games are part of growing world of apps available on various platforms like smart phones and social networking sites like Facebook.

Analysts say the apps economy is worth $1 billion today and could be headed to $4 billion by 2012. I am pleased to have Mark Pincus at the table for the first time. And one point, personal interest, I have small investment in a firm that invested in his company. So I’m pleased to talk to Mark Pincus about what’s going on in the world of apps. Welcome.

MARK PINCUS: Thank you.

CHARLIE ROSE: Tell me what do you.

MARK PINCUS: Sure. So the best way to think about what’s going on with social games, it’s really a throwback to the kinds of board games that we all grew up playing with our friends and families where the game was really just a context for us to be social.

And that’s really what’s going on with social networks and smart phones today, what we are all getting connected, and it’s like a cocktail party which really started with Friendster, which is really the first time we all got together online. And if you remember, people complained there’s nothing to do now that we’re all together on this social network. And so Facebook was one of the first to start to add more dimensions to that experience with feeds and pictures.

And when they opened up their platform and then others like MySpace and the iPhone opened up, it gave independent third party game developers a chance, like us, a chance to build games that their users could use to interact with each other.

CHARLIE ROSE: You decided to start this company, and you saw what opportunity?

MARK PINCUS: Well, for me, I had started a social network actually before Facebook called tribe.net, which failed. But what I saw during that time was that people did need something to do with each other.

And once Facebook opened up their platform to third parties, I immediately thought the opportunity I was most excited about was to provide a chance for people to play games together.

CHARLIE ROSE: And did you have any idea of the potential of it all?

MARK PINCUS: I’d say, at first we didn’t realize how big social gaming could be. But once we launched our first game and we saw how viral it could be and how many people would want to come and play games together, we started to see how big the audience could get.

CHARLIE ROSE: And so those people who correspond in face groups, as an example, how much time do they play games versus what other activities they do?

MARK PINCUS: We don’t have any particular data, I think only the networks have that. But we’ve heard that people in aggregate may be spending as much as half of the time on these networks playing games.

CHARLIE ROSE: Tell me about “Mafia Wars.”

MARK PINCUS: Sure, so “Mafia Wars'” is a game where you form a mafia with your friends and you — it’s kind of like a game like “World of War Craft” but it happens in text and pictures instead of immersive environments. The key difference is that you are relying on your friends. You’re collaborating together throughout the game. There’s features like “declare war” where if somebody attacks you, you can declare war on them and it tells all your friends to come help you.

People have taken it to this much more extreme place where they have actually created whole clans that can have thousands of members to them. A game like “Cafe World,” we actually created one for you.

CHARLIE ROSE: Great. This is great.

MARK PINCUS: This is Charlie’s Cafe. And if you look, you’re the cook, I’m a waiter, Hillary Clinton is a waiter, and Obama is a waiter. And so you are virtually playing with all of us. And you can hire us to work in your restaurant, you can come to our cafes, you can gift dishes to each other.

And everybody is building out their restaurants, sometimes in competition and often in collaborations.

CHARLIE ROSE: Talk a little bit about virtual gifts.

MARK PINCUS: Sure. Gifting was from early on when Facebook opened the platform, gifting became a very popular activity. If you think about what is going on in social network, I like to say that you’re in a game of building your social capital. So, if you’re playing the game of Facebook or MySpace you’re building out your network and you’re actually doing things that elevate your status with all of these other people. And gifts is a terrific way to build your social capital with people. And virtual gifts are much easier and quick tore give people than UPS-based gifts.

CHARLIE ROSE: Right. For your company, you look ahead, is games between social network members the principle source of revenue, or do you see this having some potential that you — hasn’t fully developed yet.

MARK PINCUS: Well, you may see something I don’t, but we are excited about the future of social games and virtual goods as a revenue model within social games. So, what I mean by that is, our users, these are free games. And one to two percent of the users will spend money on the games. And they can spend them on virtual goods, virtual gifts we just started selling. And that has been a revenue model that has enabled our company to be profitable for eight straight quarters. And we are very bullish on the growth that have business, and we’re not really looking for other business.

CHARLIE ROSE: Tend to your own knitting, as someone once said. What’s the size of the app market today?

MARK PINCUS: There are different ways to think about it. There are only three ways. You can think about it in terms of the number of apps that have been downloaded. And there’s lots of estimates, I think it’s probably something in the range of four billion apps have been downloaded.

CHARLIE ROSE: And that’s a business that was not in existence how many years ago?

MARK PINCUS: Three years ago.

CHARLIE ROSE: Three years ago. A totally new business.

MARK PINCUS: Yes.

CHARLIE ROSE: Go ahead.

MARK PINCUS: Second is you can look at it by numbers of users. And again, there’s all kinds of estimates. But people think out of the 400 million users on Facebook, more than half of them regularly use apps and probably two-thirds have participated, 80 percent of iPhone users download games and apps. So I think they’re supposed to grow to 50 million users.

So I think there are several hundred million users interacting with apps today. Third, you can think of it in terms of the revenues, which is good way to think about businesses. And from a revenue perspective, I think people are estimating more than two billion in revenues next year.

CHARLIE ROSE: And what’s the prospect say for five years out?

MARK PINCUS: Well, you can look to the Asian market where it’s not so much apps as it is free games with virtual goods. And that’s already several billion dollars. I think most analysts predict that the worldwide market will grow to north of $8 billion in revenues in the next couple of years. And I think we’ll see. I think it could grow to 15 billion in the next five years.

CHARLIE ROSE: You have no particular interest in games but you were just looking for entrepreneurial opportunities?

MARK PINCUS: I saw that social games looked like a perfect opportunity that could be launched because of social networks.

CHARLIE ROSE: How much of it is played by smart phones, on smart phones?

MARK PINCUS: It’s actually a smaller percentage. It’s maybe — I’d guess five or six million people a day that might be playing games on smart phones.

CHARLIE ROSE: And how many on computers?

MARK PINCUS: I’d say that’s probably in the range ever 60 million or 70 million a day.

CHARLIE ROSE: Will that equation change over the next five years?

MARK PINCUS: Yes. It’s changing rapidly. So with the iPhone and iPod touch, that market is growing incredibly quickly. And I expect that the rest of the phone market will catch up.

CHARLIE ROSE: The Droid and everybody else will be in there with apps and competing, right?

MARK PINCUS: Yes.

CHARLIE ROSE: The penetration of smart phones will change the world that we know in what way?

MARK PINCUS: I think that the penetration of the Blackberry has already changed our world in a way that we’re not even completely aware of yet. I was walking around Central Park this weekend and literally I’d say seven out of ten people were on their Blackberries. And —

CHARLIE ROSE: Blackberries, and specific, not iPhones but Blackberries?

MARK PINCUS: Mostly Blackberries but also iPhones. And I believe that it’s not all bad. I believe that what’s happened because of these smart devices, we can be productive all the time now. And so we can be on e-mail, we can be doing business, we can be social, playing games in all the nooks and crannies of our time.

And it actually raises our opportunity cost of doing other activities. It’s hard now to sit on our airplane read a book when you can be on the Internet.

CHARLIE ROSE: How else is the world changing? Who factors beyond that are at play that we ought to understand because it’s your business to understand those factors?

MARK PINCUS: Well, I think there is a social media revolution going on right now. And I think that we are changing our media consumption habits at a rate that we haven’t done even with the advent of the Internet. And I think it’s going on right now. I think that people regularly are consuming media while they’re at work and while they’re doing other activities in a tab in their browser or on their smart phone. And I think media will change. In order to thrive I think media will figure out how to entertain me in several minute bites and in ways that are more social.

So, more that my friend is talking about a “Charlie Rose Show,” and I might trip over what I call a social bread crumb. So I might be more likely to find your show in my news feed on Facebook or Twitter because a friend is talking about it then going back to your Web site.

CHARLIE ROSE: Exactly. And so that’s one phenomenon happening. Give me some others of how the landscape is changing.

MARK PINCUS: Well, I think that more and more people are starting their web experience because of an SMS message or something they saw on a Twitter home page or Facebook home page not necessarily starting at Google or Yahoo!

CHARLIE ROSE: See, that’s a huge thing. To say that is a huge thing.

MARK PINCUS: I hope I’m right.

CHARLIE ROSE: No, but it’s amazing to me, rather than Googling for something or finding it on Google, because of Twitter, because of Facebook, because somebody mention something and that’s within your world of interest and friendship, you are going to go look at it.

MARK PINCUS: Yes. I think you may get to a public web and a social web, and you’ll use both. They will interact with each other.

CHARLIE ROSE: And define how the two would be different.

MARK PINCUS: The public web experience is what you have today. It is going to a destination like Google or eBay or Amazon. And you don’t have to be logged in. And you’re just going to book an air flight or whatever. And the social web experience is a logged in experience where the Web site that you are going to knows something about you.

CHARLIE ROSE: Where are we in terms of the digital revolution?

MARK PINCUS: I think we’re very early, 10 percent in. When I started this company I woke up in 2007 and I was amazed that I could count the number of major consumer net, Internet brands on one hand. And they were a search engine, a garage sale site with eBay, classified listings, a portal. It was amazing to me that there was only five or six.

CHARLIE ROSE: And today?

MARK PINCUS: Seven.

(LAUGHTER)

CHARLIE ROSE: But if you are starting out today, and if you were looking for other things that you thought were exciting and had a huge future, give us some indication wherever they are.

MARK PINCUS: Sure. I’m turned on by all of the things that we do in high volume on the Internet today that could be recreated in social context. So my wife has launched a private sale site for home decor items, which I won’t plug. But it’s…

CHARLIE ROSE: A private sale…

MARK PINCUS: So in other words, you join her site, and every day they show you deals that are limited time offers…

CHARLIE ROSE: Right.

MARK PINCUS: It’s an alternative way to shop. Now, e-commerce could happen through a social lens. I could go to either Facebook or a site that is socially enabled and I could find deals on black Friday or whatever through what my friends have done. I could find my travel through a social lens. It’s not always obvious where it will be better, and that’s the opportunity for entrepreneurs. But I think there’s a shift in people’s habits. They’re spending time on socially enabled sites. They’re looking for much quicker short form and sometimes mobile option for entertainment.

And I think that they’re going to instantiate new web services. So I think there’s an opportunity to be my travel site.

CHARLIE ROSE: Are you in it for the money? Are you in it because of some other reason?

MARK PINCUS: That’s a great question. I’m interested in creating what both of our friend Bing Gordon calls “Internet treasure.” And I think that we will be remembered in this point in history for the great consumer branded Internet services that were created that enhance people’s lives, like Amazon, like Google, like Facebook.

And as an entrepreneur, the opportunity to potentially create one of those branded services is what turns me on and what I hope to one day do. My friends who have had big financial pay outs where they sold their company or are no longer at a successful company, they find themselves kind of bored and lost, and they have to go through these kind of mid-life crises every time. And I think so many of us are really searching for our 20-year career.

And people said to me, Pincus, you’re a serial entrepreneur. You just love starting company. I say, no, I don’t. It’s really hard. And I would love to find a company I could be at for 20 years.

CHARLIE ROSE: A, congratulations. B, it’s fascinating to learn about this. Ben Gordon did me a favor by telling me about you and what’s going on with Zynga, and let’s keep in touch.